Betting on Brokerage

Betting on Brokerage

Bradley S. Jacobs is buying into transportation in a big way. The founder of two multibillion-dollar enterprises, Jacobs and his associates will invest $150 million in Express-1 Expedited Solutions, a publicly owned trucking and logistics company.

He plans to leverage that $150 million investment in Express-1 to create a multibillion-dollar non-asset transportation and logistics giant that would compete with the largest non-asset brokers, including $9.3 billion C.H. Robinson Worldwide and $6 billion Expeditors International of Washington.

“There are thousands of acquisitions opportunities” in transportation brokerage, Jacobs told The Journal of Commerce. “We’re going to buy a lot of freight brokers of all sizes all around the country. We’re talking to brokers with as little as $5 (million) to $10 million in annual revenue and ones with as much as $1 billion in revenue.”

And he isn’t just shopping for domestic truck freight brokers. He plans to acquire expedited trucking and international air and ocean freight forwarding businesses as well. Express-1 Expedited has divisions that specialize in all three services.

“I love expedited,” he said, noting Express-1 is the fifth-largest U.S. expedited trucker, according to The Journal of Commerce and SJ Consulting Group. “I’d like to move that up a rung; I don’t like being No. 5 but No. 1 or 2,” Jacobs said. “We’re going to buy some other expeditors, and we’re going to increase the pace at which we sign up owner-operators.”

Jacobs is striking while the transportation and logistics acquisition market is hotter than it’s been in years, with a slew of acquisitions, mergers, investments and partnerships occurring in trucking, air cargo and ocean shipping. His investment vehicle is Jacobs Private Equity in New York. The firm will purchase 43 million shares of Express-1’s stock for $75 million, and then exercise warrants to acquire another 43 million shares for $75 million. Co-investors will provide another $15 million for total investment of $150 million.

If shareholders approve the investment plan, already backed by Express-1’s board, Jacobs will become chairman and CEO and majority owner of the fast-growing $158 million company. Buchanan, Mich.-based Express-1 increased its revenue 58 percent in 2010 from $100 million in 2009, while its profit jumped 187 percent. Sales have risen 31 percent in the last two quarters.

Express-1’s expedited trucking revenue grew 51.3 percent in 2010. Concert Logistics Group increased its revenue 58.5 percent, while Bounce Logistics, its truckload brokerage unit, increased revenue 91.8 percent.

Jacobs plans to keep the company’s management team, Express-1 co-founder and CEO Michael Welch, President Jeff Curry and Director of Business Development Daniel Para. Curry will run the expedited portion of Express-1, while Para will lead Concert Group Logistics, Express-1’s forwarding wing.

“Mike (Welch) will still have responsibilities at Express-1, but also will be working with me on acquisitions,” Jacobs said. “We’re already starting.”

Jacobs, 54, may not be well known in trucking, but he’s no stranger to Wall Street. Since 1992, he has raised more than $6 billion from the debt and equity markets. He started his first company, Amerex Oil Associates, in 1979, and his second firm, oil trading company Hamilton Resources (UK), in 1984.

In 1989, he founded United Waste Systems, which he built into the fifth-largest U.S. waste disposal firm through more than 200 acquisitions. He sold the publicly owned firm in 1997 for $2.2 billion. According to Forbes magazine, Jacobs turned an initial $3 million investment in United Waste Systems into $120 million in eight years.

He then turned to the highly fragmented equipment rental business, co-founding United Rentals in 1997 and serving as its chairman until 2007. United Rentals, which Jacobs once said was founded “around my dining room table,” grew through acquisitions to become the largest construction equipment rental firm in the U.S. When Jacobs stepped down in 2007, the company had $3.9 billion in sales. The initial investment in the company by Jacobs and partners totaled $46.5 million.

Jacobs said the non-asset logistics business is ripe for the same type of consolidation strategy he used in the waste management and equipment rental industries.

“When I got into the waste and rental businesses, it was premised on a similar sense of the penetration trend,” he said. “In the waste business, there were regulations coming into play that put old dumps out of business and created demand for new technologically sophisticated players. In construction, a lot of the contractors were buying equipment and only using it for a portion of the year,” generating demand for seasonal rental business. He sees similar trends at work in transportation.

Transportation “is bigger and more fragmented than other industries I’ve had success with in the past,” he said. “I started my search in transportation with the idea of consolidating trucking companies in the U.S., but I migrated to an asset-light model when I saw the high returns on capital. I was very impressed by C.H. Robinson and Expeditors.”

Jacobs also believes third-party logistics providers, freight brokers and forwarders will grow and gain market share as shippers outsource more transportation. “There are a large number of shippers that routinely use a very small number of capacity providers out of habit,” he said. “My nose tells me there will be more outsourced transportation services. It’s a service that underutilized.”

He also expects smaller truckers to increasingly rely on 3PLs and brokers to secure business. “I’m not convinced those smaller trucking companies are efficiently finding the best freight to haul,” he said. “I think that over time truckers will use brokers more and more and more. I could be wrong, but I’m willing to make a bet on that.”

-- Contact William B. Cassidy at wcassidy@joc.com. Follow him on Twitter @wbcassidy_joc.